SOUTH BURLINGTON — The expected cost to extend a natural gas pipeline to Addison County has jumped 40 percent to $121.6 million.

Vermont Gas Systems announced the revised estimate this week, attributing the $31.6 million increase to a demand for construction materials and labor that coincides with a nationwide surge in natural gas production.

The company also said its costs for Phase I of the Addison Rutland Natural Gas Project have risen locally for engineering work associated with route changes to accommodate the concerns of landowners, residents and other interested parties.

Also, there are increased costs associated with the oversight of the project, including construction managers and inspectors, the company said.

In total, the revised estimate for Phase I is $121.6 million, which is recoverable by the company in future rates.

The company maintains that even with the increased cost, extending the pipeline from Chittenden County south to Vergennes and Middlebury makes sense.

“This project represents a significant investment in providing a long-term affordable and stable energy supply to Addison County residents and businesses,” company spokesman Jim Sinclair said in an email Thursday. “The economic fundamentals of the project remain very strong.”

One of the selling points of natural gas is that it is currently half the cost of heating oil and propane. Sinclair said the cost comparison remains valid, which represents upward of $200 million in energy savings for Addison County residents.

Sinclair said natural gas will reduce greenhouse gas emissions by 25 percent over other fossil fuels.

Opponents of the project, however, argue that the state should focus on expanding the use of renewable energy sources, not fossil fuels. Critics, who have turned out in large numbers at Public Service Board hearings, decry the use of the hydraulic fracking process in Alberta to extract natural gas.

Vermont Gas Systems, a subsidiary of Gaz Metro of Montreal, relies on Canadian natural gas to serve its 50,000 customers in Chittenden and Franklin counties.

Paul Burns, executive director of the Vermont Public Interest Research Group, said Friday the spike in the project’s cost was a concern.

“I think that is a shocking figure,” Burns said. “Even for someone who has been skeptical about the project, there’s no way I anticipated a cost overrun of this magnitude this early in the project.”

In December, the Public Service Board issued a certificate of public good for Phase I. But with the cost already exceeding estimates before major construction has begun, Burns said the PSB should take another look at the project’s viability.

“At some point, you’ve got to believe the board would open it up,” he said. “I don’t know what the magic number is, but 40 percent is a pretty big increase.”

The head of the department of state government charged with looking after the interest of utility ratepayers downplayed the significance of the revised cost estimate.

Commissioner Chris Recchia of the Department of Public Service said the jump in the project’s cost is simply a function of the marketplace for installing natural gas pipelines.

“This is not about a cost overrun or underestimation or expenses or anything like that,” Recchia said.

Asked whether Vermont Gas Systems should have had a better handle on the demand for natural gas production and the ripple effect on the cost of the project, Recchia said there “wasn’t any reason to anticipate this in advance of getting the (bid estimates).”

He remains convinced the pipeline extension is a viable project. “The benefits of this project far, far outweigh the cost even … with this result,” he said.

While the three-member PSB may review the project, Recchia said he doesn’t anticipate the board making significant changes in its determination as a result of the new estimate.

Phase II of the project, which awaits regulatory approval, would extend the pipeline from Middlebury southwest to Cornwall and Shoreham, and under Lake Champlain to serve the International Paper mill in Ticonderoga, New York.

IP is footing $62 million of the $64 million estimated cost of Phase II. Sinclair said any additional cost would be borne by IP.

The IP investment will allow Vermont Gas the financial ability to begin Phase III and extend the pipeline to parts of Rutland County 15 years earlier than previously planned.

“From a Rutland County perspective, we are continuing with our extensive community outreach efforts and will soon begin the process of working with local communities and other key stakeholders to identify the preferred pipeline route (for Phase III),” Sinclair said.